Despite macroeconomic headwinds, strong fundamentals and demographic tailwinds position Africa’s banking sector to sustain its growth and profitability in the coming years, the report says.

Africa’s banking sector, valued at about $107 billion in 2025, remains heavily concentrated in a handful of markets, although faster growth in smaller economies is opening new expansion opportunities, according to a new report by consulting firm McKinsey.

Roughly 70% of the continent’s banking revenue in 2024 was generated by its five largest markets–Egypt, Kenya, Morocco, Nigeria and South Africa–with South Africa alone contributing more than a quarter, or $26.4 billion, the report said.

While these markets are expected to retain their dominance, double-digit growth in smaller countries suggests new frontiers are emerging, supported by digital adoption and underserved customer segments.

“Banks in smaller African markets can unlock growth by focusing on digital-first banking models that extend services beyond physical branches,” says Akin Adegoke, Chief Digital Officer at Nigeria-based LOTUS Bank, to FORBES AFRICA.

Partnerships with fintech firms and telecom operators can accelerate innovation and reduce customer acquisition costs, while specialized offerings in areas such as small and medium-sized enterprise (SME) finance, agriculture and non-interest banking can create new revenue streams, he adds.

African banks have outperformed global peers in profitability, delivering return on equity of 19% in 2024 and an estimated 17% in 2025, compared with a global average of about 10%, the report showed. Higher interest rates and growth in noninterest income helped boost returns.

The sector also expanded its role in the broader economy, increasing its share of GDP by 0.4% points between 2020 and 2024, alongside strong revenue growth on a constant-currency basis.

However, currency depreciation and foreign exchange volatility have tempered gains when measured in United States (U.S.) dollars. Revenues grew at a compound annual rate of 5.2% from $81 billion in 2020 to $99 billion in 2024, broadly in line with global trends. Growth picked up to around 7% in 2025 amid improving macroeconomic conditions.

Looking ahead, demographic trends are expected to support expansion, the reported projected. Africa’s population grew by more than 2% annually between 2020 and 2025, with the working-age population rising at nearly 3% a year, creating a larger, more digitally connected customer base.

However, challenges including high unemployment, low-income levels, exchange-rate pressures and inflation, forecast at 4% to 6% by 2030, could weigh on the sector.

Sheriff Adedokun, CEO of Nigerian fintech startup Clea, says smaller-market banks should prioritize regional expansion and cross-border capabilities rather than replicate models from larger economies.

“The next wave of growth will not come from replicating large-market models, but from solving structural gaps,” he says to FORBES AFRICA, pointing to opportunities in trade finance, diaspora payments and transaction-based services.

Competing directly with dominant banks in major markets would be a mistake, says Ifelade Ayodele, CEO of payments platform Blaaiz.

“The smarter approach is to focus on specialized, niche offerings that complement rather than compete,” Ayodele says to FORBES AFRICA, highlighting opportunities in micro-distribution, rural finance and technology-driven lending.

By targeting underserved segments and leveraging technology, smaller banks can diversify revenue and build loyal customer bases without entering direct competition with established players, he adds.